it can no longer be used or is economically worthless. Indeed, some industries, machines used every day have been reported having no book value whatsoever for more than 30 years. -t Income. Net income (or net earnings) is the total profit loss) after all expenses, including taxes, have been deducted m revenue. Generally, accountants divide profits into indi- ual sections such as operating income and earnings before erest and taxes. Microsoft, for example, lists earnings before ome taxes, net earnings, and earnings per share of outstand- stock (see Table 14.4). Like most companies, Microsoft sents not only the current year's results, but also the previous years' income statements to permit comparison of perfor- nce from one period to another. net income the total profit (or loss) after all expenses, including taxes One final note about income state- have been deducted from ments: You may remember that revenue; also called net corporations may choose to make earnings. cash payments called dividends to shareholders out of their net earn ings. When a corporation elects to pay dividends, it decreases the cash account (in the assets category of the balance sheet) as well as a capital account (in the owners' equity category of the balance sheet). During any period of time, the owners' equity account may change because of the sale of stock (or contributions/with- drawals by owners), the net income or loss, or the dividends paid. Walmart Supercentre Phan mporary Nature of the Income Statement Accounts. mpanies record their operational activities in the revenue and ense accounts during an accounting period. Gross profit, earn s before interest and taxes, and net income are the results of culations made from the revenues and expenses accounts; they not actual accounts. At the end of each accounting period, dollar amounts in all the revenue and expense accounts are ved into an account called "Retained Earnings, one of the ners' equity accounts. Revenues increase owners' equity, while enses decrease it. The resulting change in the owners' equity ount is exactly equal to the net income. This shifting of dol values from the revenue and expense accounts allows the n to begin the next accounting period with zero balances in se accounts. Zeroing out the balances enables a company to int how much it has sold and how many expenses have been urred during a period of time. The basic accounting equation ssets = Liabilities + Owners' equity) will not balance until revenue and expense account balances have been moved or sed out to the owners' equity account. EL Walmart is the world's second largest company with revenues of over $481 billion. Kevin Brine/123RF BUFFALO WILD WINGS: FROM ACCOUNTING MESS TO SUCCESS BHI uffalo Wild Wings was founded in 1982 beer, giant televisions featuring sports games, by James Disbrow and Scott Lowery after and buffalo wings with 21 different sauces. the two were unable to find a nearby restau With $1.8 billion in revenue, Buffalo Wild rant that sold the buffalo wings they desired. Wings has expanded into Canada, the Philip- After a few years in business, the founders got pines, and the Middle East, with its first res- in trouble with the Internal Revenue Service taurant in Dubai, United Arab Emirates. The for misusing the money they withheld from move might seem unusual: Alcohol is forbid- employee paychecks. With finances a mess, den in many Middle Eastern countries, and the company hired former KPMG tax specialist the higher cost of chicken wings is affecting and current CEO Sally Smith to help sort out its net profit margins. But through local part- financial records. With Smith's help, the com nerships and menu changes, Buffalo Wild pany thrived. Today, the chain's 1,175 stores Wings is confident it can succeed with global are well known for their unique combination of expansion. Discussion Questions 1. Why did Buffalo Wild Wings get in trouble with the IRS, and what does this say about the importance of accounting? 2. Why did Buffalo Wild Wings need someone with a strong accounting background to turn the company around? 3. How might higher priced chicken wings impact the company's profitability? CHAPTER 14 Accounting and Financial Statements 269